The Defense Department and other government agencies rely heavily on commercial communications satellites, one example, some argue, of the interconnection between the public and private sectors in space. (credit: Boeing)

The space economy: a public-private partnership?

by Jeff FoustMonday, March 16, 2009

It goes without saying that the biggest issue facing governments around the world over the last several months has been the current economic crisis. Worried that a steep recession could turn into something worse, governments have propped up failing banks and increased spending to try and stimulate the economy. In the US in particular this has generated discussion and debate over issues like nationalization of banks and whether the country is edging (or veering) towards socialism. In any case, it’s clear that the government will have a much bigger role in the economy than at any time in recent history.

So what does this imply for the space industry, including the so-called “space economy”, defined by NASA as the range of goods and services that provide value to people through the course of exploring and utilizing space (see “NASA’s new outreach plan”, The Space Review, July 2, 2007). As a varety of experts discussed during the half-day Space Economy Symposium, held last Friday at the US Chamber of Commerce headquarters in Washington, the public and private sectors are already tightly interconnected in the space sector. Some have lamented that state of affairs, but in the near term, at least, that interconnect might be more beneficial than harmful.

Siamese twins

One of the first questions when dealing with this topic is measuring just how big the space economy is, in both absolute terms and as a fraction of the overall economy. Studies like The Space Report, published by the Space Foundation, estimate the overall size of the global space economy at about $250 billion in 2007 (an updated version of the report with 2008 data is scheduled for release at the end of this month.) Henry Hertzfeld, a professor at George Washington University, notes that such estimates can vary somewhat depending on methodologies, but in general the space economy is tiny compared to the global economy: about 0.5 percent of global GDP, he estimated.

“Governments and the aerospace sector are Siamese twins,” said Hayward. “They are bound together in one way or another.”

A large chunk of that $250 billion is spent on consumer applications, like direct to home television and GPS receivers, that are broadly commercial. However, there is a core infrastructure of space services and applications, like launch and manufacturing, where there is a greater interdependence between the public and private sector.

“Governments and the aerospace sector are Siamese twins,” said Keith Hayward, director of research for the Royal Aeronautical Society. “They are bound together in one way or another.” That meant, he believes, that the government will continue to play a considerable role in the space sector for the foreseeable future. “How soon will that shift? Not very.”

“All space endeavors involve partnerships of some sort with government; some more involved, some less,” said Hertzfeld. “Most of the tension in those partnerships is who assumes the ultimate risk.”

A more extreme view on that came in the keynote address by Congressman Parker Griffith, a Democrat whose northern Alabama district includes NASA’s Marshall Space Flight Center. Increased government funding for space was important, he said, because “only governments can afford to do space.” When asked about that during a question-and-answer session afterwards, he amended his comments somewhat, playing up the need for partnerships between government and industry. “Fundamental research has to come out of the government and then our private sector will partner with us as a government to improve it and make it more ubiquitous, so to speak.”

Part of the reason for that dependence, some panelists noted, is the lack of a breakthrough on the transportation side that would radically change the economic equation. Hayward drew an analogy to commercial aviation, which was transformed by the jet engine. “Space has yet to find its jet engine that will revolutionize its economics.”

Hertzfeld was pessimistic that such a revolution would come soon. “Cheap access to space is a holy grail in this industry,” he said. “We’re not there, and it’s not going to happen at least in the short term. We need essentially new technology that we don’t have to really make it cheap.”

“Cheap access to space is a holy grail in this industry,” Hertzfeld said. “We’re not there, and it’s not going to happen at least in the short term.”

Reliance on the government, though, carries its own risks, since spending is subject to the political process and thus, to some degree, public awareness. However, as the panelists noted, the public is often not very aware of society’s dependence on space because many space applications—communications, navigation, etc.—are very transparent to end users, at least until they fail. Demonstrating what part of the overall economy is dependent on those services, Hertzfeld suggested, would go a long way to helping improve awareness of space to the public.

The same can be true for businesses. “In a lot of cases other industries that work with space don’t want to be considered space companies,” said Space Foundation vice president Marty Hauser. Those companies, he said, prefer to identify themselves with other, much larger fields, like media or manufacturing.

“If I had an unlimited PR budget, I’d do the Gore approach,” Hayward said, referring to former vice president Al Gore’s “An Inconvenient Truth” presentations about climate change, in this case describing to the public how reliant they already are on space.

Congressman Parker Griffith argued, controversially, that “only governments can afford to do space” during his speech at the Space Economy Symposium. (credit: J. Foust)

Future prospects

So what does the future hold for the space economy? For the last several years there has been considerable attention focused on the emerging, entrepreneurial “NewSpace” sector, especially in areas like launch and space tourism, which in many cases appear to have little connection with traditional, government-dominated space sectors. However, even in these new markets companies see opportunities for cooperation with—although not dependence upon—government customers.

“In some cases it’s a question of where the government should get out of the way and become a customer,” said Bob Richards, CEO of Odyssey Moon, one of the teams competing for the Google Lunar X Prize. “There are partnerships that can take place where government can get out of the way while helping enable markets,” he suggested.

Larry Williams, vice president of SpaceX, suggested government investment in engine technology could go a long way towards Hayward’s “jet engine” that could revolutionize space transportation. “If there’s one thing I think would ultimately lower the cost of access to space, it’s actually getting the civil and national security communities together to invest in the development of a new, large liquid engine, something along the lines of the F-1,” he said, referring to the powerful engine used on the first stage of the Saturn 5. “If we had the F-1 back, that would be a game-changer, in my opinion, in terms of cost of access to space.” That could be done, he said, for “a relatively small investment” spread across several agencies.

Even in more established sectors of the space industry there are emerging technologies as well as opportunities for cooperation between the public and private sector. Steven Boutelle, who leads Cisco Systems Internet Router In Space (IRIS) program, sees an “inflection point” in satellite communications by 2014 to 2017, thanks to a combination of Ka-band spot beam satellite systems, growth in “converged” networks, and Internet routers on satellites. “It finally makes space a viable alternative” to some terrestrial networks, he said. “When you get a 100x improvement, all of a sudden satellite becomes a viable option for at least selected high-value data.”

To demonstrate this capability, which has obvious interest to government and commercial users alike, Cisco is working with the Defense Department to fly a router on a commercial satellite, Intelsat 14, scheduled for launch later this year. This project, IRIS, is being flown as a “hosted payload”, where a commercial operator agrees to include a government-funded payload on its satellite. That has presented some challenges of its own.

“‘Hosted payload’, when I was in the service, was always a pejorative term,” Boutelle, a retired Army lieutenant general, said, despite the military’s dependence on commercial satellite communications. “The IRIS program, in fact, is as much about how quickly you can put a package on a satellite as it was the actual package.”

Even those who believe in a tight partnership between the government and commercial sectors think there may be potential for a more commercial space industry in the form of NewSpace, although not necessarily in the near future. Hayward said that he saw in the work of Burt Rutan and his company, Scaled Composites, “the spark of the small, privately-funded space enterprise.” However, he said later that while there are “interesting implications in the Rutan philosophy,” he added that he was “still hesitant about whether this was the panacea” for the industry.

Hertzfeld said that NewSpace wouldn’t have much of an effect on the overall space economy in the near term because it’s so small. “Long term? It’s an open question,” he said. “It’s an important sign, though, that there are people out there who want to invest their own money and try to expand this commercial sector.”

“If there’s one thing I think would ultimately lower the cost of access to space, it’s actually getting the civil and national security communities together to invest in the development of a new, large liquid engine, something along the lines of the F-1,” Williams said.

At the end of one of the panels at the symposium, titled the “State of the Space Economy”, the panelists were asked to assess the health and prospects for the space economy. Despite the pervasive pessimism about the economy in general, they were guardedly optimistic about the space sector, in large part because of its close ties to the government. “It’s as good as can be expected,” Hayward said, although he noted that aerospace can be a “lagging indicator” compared to the rest of the economy.

“I think we’re healthy, although there’s room for improvement,” Hauser said. “We may be a little ahead of the curve, and there still may be more downturn for our industry, but in general I think we’re doing okay.”

“I think it’s actually, in relative terms, quite positive,” Hertzfeld said. “We’re going to get hit a lot less by this recession than many other sectors.” The strong ties with governments, and increased spending by them, will help buoy the space industry, he said. “We’re going to survive a lot better than many other sectors.”

Jeff Foust (jeff@thespacereview.com) is the editor and publisher of The Space Review. He also operates the Spacetoday.net web site and the Space Politics and Personal Spaceflight weblogs. Views and opinions expressed in this article are those of the author alone, and do not represent the official positions of any organization or company, including the Futron Corporation, the author’s employer.